Polish GDP in focus

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Currencies: Global equity rally brings relief to the CEE region
Fixed Income: Polish GDP in focus

Currencies

Extreme intraday volatility has been the name of the game for the zloty all week long and Wednesday’s session was no different. The EUR/PLN held between 3.32-3.40 in choppy trade, only to end the session near the bottom of the range. Given the improvement in sentiment in equity markets following the successful passage of President Obama’s stimulus plan in the House we could see the global risk appetite conditions improve enough to calm the market somewhat. The last piece of data this month (the preliminary 2008 GDP reading) will be eyed as well, but is unlikely to have a lasting impact on the sentiment driven market. We are looking for a sub 5.0% y/y result given the latest much weaker than expected IP numbers, which would be consistent with a growth estimate of 2.7-2.8% y/y in Q4, and fundamentally would not be good news for the currency. The official quarterly figures are scheduled to be released at the start of March, along with the potential revision of the annual numbers

The Czech koruna enjoyed one of the longest equity market rallies since November 2008. Relief helped the pair to get as far as 27.30 EUR/CZK. Nevertheless for the second day in a row, it failed to close below the crucial technical supports at 27.38 EUR/CZK. Hence we are quite cautious about making strong results from the recent optimism. Moreover the sentiment in the CEE region can change quite quickly with US initial claims and durables scheduled for today.

The Hungarian forint had a quiet day again between 284 and 287. The government announced new forecast for this year about a deeper recession at 2.5-3%, in line with market expectations.

Fixed income

Unlike the zloty, Polish bonds had a fairly calm session on Wednesday. The market gave up some of the post MPC gains for longer maturities, but held ground well at the short end of the curve in anticipation of the aggressive policy easing still in store from the MPC. Top-hawk Halina Wasilewska-Trenkner came out early today to say that the NBP would not lower rates below 2.0%, which seems to be an aggressive statement given the market’s current expectations that the cycle will end at 3.0-3.5%. Regarding today’s trading the 2008 GDP numbers will be the eye catcher – we are looking for a rather soft reading (more in FX part), which should also be supportive for bonds.

The Czech yield curve steepened on Wednesday. Yields, in average trading volumes, lost up to 2 bps at the short end of the curve as markets expect a rate cut. Some unofficial rumours appeared during the day that the ministry of finance postponed the eurobond issuance to an undefined term in the future expecting more favourable market conditions. No new data should be released today. However, current yields at the short end of the curve may decline again as markets expect the rate cut and the yield curve could steepen again.

The Hungarian bonds had a slightly negative day on the back of news about a possible VAT hike later this year. Volume is low in general and this may remain so until we see credible information about the government package.

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